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Home Pension fund Investing for your pension Our investment policy

Our investment policy 

The investment policy of the IFF Pension Fund

Pension funds invest in the financial markets to ensure that the pensions of their members retain their purchasing power and do not have to be reduced. The IFF Pension Fund is no exception in this respect and invests the assets of its members responsibly and according to a structured process. The Board of Trustees is responsible for the investment policy and is assisted in this respect by the Investment Advisory Committee (IAC). The investment policy is designed to achieve a result with a balanced consideration of return and risk. The Board takes account of the objectives of the pension fund, the long-term horizon of the pension fund, market conditions and the social role of the pension fund.

How we determine our policy

First of all, the Board determines the desired risk profile of the pension fund. This is important for getting a clear understanding of the risks that the pension fund wishes and is able to take in order to realise a return. The pension fund accepts the financial theory that risk has to be taken in order to realise a return. The risk profile is set on the basis of factors such as the member population (for example, the average age) and the arrangement in place (for example, the possibility of indexation). The members and social partners are also requested to state their preferences.

Besides the risk profile it has set, the pension fund also uses what are known as investment convictions as the basis for its investment policy. These convictions concern the pension fund’s view regarding the operation of the financial markets, investment categories and investment styles.

We use an asset-liability management study (known as an ALM) to determine the best possible allocation across investment categories (such as equities and bonds) in the investment portfolio. An ALM study calculates future projections of the investments and the liabilities using long-term economic assumptions with respect to risk and return. An ALM study reveals how changes in the investment portfolio will affect the pension fund’s risk-return profile. Since the fund’s situation and the conditions in the financial markets are subject to change, an ALM study is carried out approximately once every three years.

Once the allocation across investment categories is decided, asset managers are selected to implement the investment policy. These asset managers are selected using an extensive selection process involving various criteria of the pension fund. Besides criteria such as cost, returns realised in the past and organisational factors, socially responsible investing has a prominent role in the engagement of an asset manager.

How do we manage risk?

The pension fund is aware that investing involves risk. One of the principles of the pension fund is that the return on investments should outweigh the risk. The two main risks for the pension fund are interest-rate risk and currency risk. The pension fund strives to manage and monitor these risks as effectively as possible.

Since the pension fund invests in global equities, it is exposed to foreign currency risk, for example the US dollar. If the US dollar falls in value, this will negatively affect the value of the investment portfolio. This risk is hedged by the pension fund to prevent it occurring.

In addition to currency risk, the pension fund is also exposed to interest-rate risk. If interest rates fall, the pension fund has to have more money in cash in order to be able to pay the same pensions (in other words, the liabilities increase and the funding ratio declines); if interest rates rise, however, less money is needed and the funding ratio rises. The pension fund hedges this risk to some extent with government bonds and other financial contracts.

Responsible investing

The IFF Pension Fund is conscious of its social role, and accordingly believes it is important to include aspects of sustainability in its investment policy. The Board also takes the view that sustainable investing is in the interests of the pension fund and its members. Sustainable investing can contribute to reducing unexpected risks such as corruption or other undesirable activities. A focus on sustainability can thus help to protect the value of the investments of the IFF Pension Fund in the longer term. We have chosen to include a sustainability policy in our investment policy. This means that sustainability is a factor in all major investment decisions, along with other criteria. The Board also understands that the opportunities for socially responsible investing can sometimes be limited due to the decision to invest in funds. Nonetheless, the sustainability of an intended investment is always assessed, as well as the extent to which a more sustainable option can be considered without deviating from the portfolio objectives.

The IFF Pension Fund does not invest itself; it delegates this to several specialist asset managers. These asset managers are subject to the standards and criteria set by the pension fund with respect to ethical investments. The pension fund expects its asset managers to give account of the ethical policy they apply. The pension fund will also give transparent account of its investment policy to its stakeholders.